Take Notice of the Notice Provisions!

The Court of Appeal has unanimously held that contractual claims under a share purchase agreement were barred by the operation of a limitation clause that required the buyer to include reasonable details of the claims, including the grounds, in its notice to the sellers.  As the buyer did not set out which warranties it was claiming in respect of, the notice was invalid and, as a result, the claim was out of time.

Pursuant to a share purchase agreement dated 19 November 2013, Aircom Jersey 4 Limited and Aircom Global Operations Limited sold to Teoco UK Limited shares in various Aircom group entities for around £41 million.  On 14 August 2015, the buyer made a claim for breach of warranty and also under a tax covenant totalling around £3.5 million.  The sellers responded by applying to strike out the claims on the basis that, although the buyer’s lawyers had written to the sellers about the claims, the buyer had not given proper notice of the claims within the appropriate time limits, as required under the agreement.

The most relevant limitation provisions of the agreement stated:

  • No Seller shall be liable for any Claim unless the Purchaser has given notice to the Seller of such Claim setting out reasonable details of the Claim (including the grounds on which it is based and the Purchaser’s good faith estimate of the amount of the Claim (detailing the Purchaser’s calculation of the loss, liability or damage alleged to have been suffered or incurred)).
  • No Seller shall be liable for any Claim unless the Purchaser has given notice of such Claim… as soon as reasonably practicable after the Purchaser Group becomes aware that the Purchaser has such a Claim, and in any event on or before 31 July 2015.

The term “Claim” encompassed both warranty and tax covenant claims.

In February 2015, the buyer’s lawyers wrote a letter to the sellers which they stated served as “notification in accordance with… the SPA of the existence of Claims, being either Warranty Claims or Tax Claims”, and referring to the “the Tax Covenant, the Tax Warranties and the General Warranties”.  The letter included some detail on a number of “Claims”, and enclosed a draft report providing further commentary in respect of one of them.

In June 2015, the buyer’s lawyers wrote another letter described as “further notification in accordance with… the SPA, providing further details of the Purchaser’s claims”.  The letter provides additional detail, including in respect of quantum.

In the previous trial, the High Court had found that neither letter set out reasonable details of the Claims (including the grounds).  Specifically, the grounds of a claim must identify which warranties are breached and/or the basis of triggering the tax covenant.  In neither letter did the buyer choose between bringing a claim for breach of one or more warranties, and bringing a claim under the tax covenant.  As a result, notice had not been validly given to the seller before the 31 July 2015 deadline.

In his lead judgment, Lord Justice Newey agreed with the High Court on the basis that the February and June letter did not identify the particular warranties/ tax covenant provisions.  Although it was possible that, in some cases, the grounds of a claim could be set out without mentioning the specific provision (or indeed, by mentioning the wrong provision), in general explicit reference was required.  In this case, there was real doubt as to which provisions were relevant (Lord Justice Newey supposed that the generalisation was “doubtless to keep the [buyer’s] options open”).

Ref: Teoco UK Limited v (1) Aircom Jersey 4 Limited and (2) Aircom Global Operations Limited [2018] EWCA Civ 23